U.S.-South Korea (KORUS) FTA



Updated January 25, 2021
U.S.-South Korea (KORUS) FTA
Overview
raised concerns regarding South Korea’s implementation of
The U.S.-South Korea free trade agreement (KORUS FTA)
the agreement.
entered into force in March 2012. The agreement reduces
and in most cases eliminates tariff and non-tariff barriers
KORUS Modifications and Other Issues
between the two parties on manufactured goods,
Unlike the negotiations on USMCA to replace the North
agricultural products, and services; provides rules and
American Free Trade Agreement (NAFTA), the Trump
disciplines on investment, intellectual property rights (IPR)
Administration negotiated changes to the KORUS FTA
and other issues; commits both countries to maintain certain
without following the requirements of U.S. Trade
worker and environmental standards; and provides
Promotion Authority (TPA). TPA, currently authorized
mechanisms for resolving disputes. The second largest U.S.
until July 2021, provides for expedited congressional
FTA by trade flows and second most recently negotiated
consideration of legislation to implement U.S. trade
after the U.S.-Mexico-Canada Agreement (USMCA),
agreements based on meeting specific criteria. The KORUS
KORUS arguably has some of the most extensive
FTA modifications, however, consisted primarily of South
commitments of any U.S. FTA in effect.
Korean regulatory changes and U.S. tariff modifications,
and therefore did not require action by Congress for
In 2018, at the request of the Trump Administration, the
implementation. The KORUS implementing legislation and
two nations negotiated amendments to the agreement
agreement provide little detail on amendment procedures,
relating to, among other things, U.S. auto exports, the U.S.
but do provide presidential proclamation authority to
truck tariff, and certain rules, including on investment. The
modify the U.S. FTA tariff schedule.
U.S. tariff modifications went into effect on January 1,
2019. Although the Trump Administration characterized the
[T]he President may proclaim. .modification…of any duty..
changes as a “basic redoing” of the agreement, most
to maintain the general level of reciprocal and mutually
analysts agree that the modifications were relatively limited
advantageous concessions with respect to Korea..
in scope and unlikely to fundamentally alter the balance of
KORUS FTA Implementing Legislation, P.L. 112-41
commitments. As the two nations were negotiating the
KORUS modifications, the Trump Administration imposed
October 21, 2011
global import restrictions, including on South Korea, on

U.S. imports of steel, aluminum, washing machines, and
The negotiated modifications included:
solar products, and proposed but did not implement

additional tariffs on U.S. auto imports. These import
Changing tariff commitments by extending the 25%
U.S. light truck tariff twenty more years to 2041;
restrictions remain an irritant in bilateral trade relations.
 Doubling the number of U.S. vehicle exports to South
The United States and South Korea, allies since 1953,
Korea that can be imported with U.S. safety standards
originally negotiated KORUS to deepen and enhance
(25,000 to 50,000 per manufacturer per year), and
economic ties and to strengthen a critical alliance
clarifying South Korean recognition of certain U.S.
relationship. The sometimes contentious nature of the 2018
emissions and auto parts standards for U.S. exports;
modification talks, including President Trump’s threats to
 Amending the trade remedy chapter by adding
withdraw from the agreement if satisfactory changes were
transparency and reporting requirements including
not made, raised concerns among some analysts over
calculations of dumping margins;
potential negative spillover effects in the bilateral security
relationship, especially at a time when the alliance requires
 Amending the investment chapter, such as clarifying
close coordination over North Korea policy. The
that public welfare may be considered in national
modification agreement allayed some of these concerns, but
treatment determinations and that failure to meet
investor expectations does not violate minimum
the Trump Administration’s statements linking trade and
standard of treatment provisions;
security issues and persistent threats of additional U.S.
unilateral import restrictions, particularly on U.S. auto
 Confirming customs principles on expeditious and risk-
imports, added a degree of uncertainty and tension in the
based origin verifications;
overall bilateral relationship. President Biden has suggested
 Amending South Korea’s Premium Pricing Policy for
he would abandon President Trump’s use of punitive tariffs
Global Innovative New Drugs to ensure it is consistent
against allies like South Korea.
with KORUS commitments;
Views on KORUS and its outcomes over its nearly nine-
 Initiating the addition of certain textile and apparel
year existence are mixed. Proponents argue the FTA has
inputs to the KORUS short supply list, potentially
expanded trade (including U.S. exports), investment,
allowing South Korea to make greater use of third-party
competition, and consumer choice in both countries,
inputs in some exports to the United States.
increased U.S. IPR protection in South Korea, and
In a separate but related move, in the spring of 2018, South
improved transparency in South Korea’s regulatory process.
Korea also negotiated an exemption from the U.S. Section
Others, including most prominently members of the Trump
232 “national security” steel tariffs that were announced in
Administration, have argued that the agreement’s impact is
March 2018. In place of the 25% tariff, U.S. imports of
disappointing, pointing to an increase in the U.S. trade
South Korean steel are subject to a quota equivalent to 70%
deficit with South Korea. Some U.S. stakeholders have also
of 2015-2017 imports. South Korea remains subject to the
Trump Administration’s tariff increases on washing
https://crsreports.congress.gov


U.S.-South Korea (KORUS) FTA
machines, solar panels/modules, and aluminum, which were
commitments, but in 2019 agreed to provide the United
also announced in 2018. A proposed currency deal was not
States with a country-specific quota under its WTO
included in the FTA’s modifications, but South Korea did
obligations worth approximately $110 million annually.
agree to disclose its foreign exchange transactions—a
practice long sought by the United States.
Motor Vehicles
U.S. and South Korean producers compete intensely in the
Trade and Investment Patterns
motor vehicle and parts sector and such imports account for
South Korea is the seventh largest U.S. trading partner with
roughly one-third of U.S. goods imports from South Korea.
total trade (goods and services) in 2019 of $170.3 billion
Auto trade was among the most contentious issues in the
($81.4 billion in exports and $88.9 billion in imports). From
original FTA negotiations, but the Detroit Three U.S.
2011 (the year before KORUS took effect) to 2019, U.S.
automakers ultimately supported the agreement. The
imports increased by 36% for goods and 8% for services,
KORUS FTA eliminated the 2.5% U.S. auto import tariff in
while exports increased by 29% for goods and by 34% for
2016, and was originally to maintain the 25% U.S. light
services. From 2011 to 2019, the stock of U.S. foreign
truck tariff through 2018, gradually eliminating it by 2021.
direct investment (FDI) in South Korea grew from $28.2
(The 2018 modifications extended the 25% truck tariff to
billion to $39.1 billion, while South Korean FDI in the
2041.) South Korea’s 8% auto import tariff was reduced to
United States more than tripled growing from $19.9 billion
4% immediately and eliminated in 2016, and its 10% light
to $61.8 billion.
truck tariff was immediately eliminated. Under KORUS,
bilateral tariffs on virtually all auto parts immediately
The overall (goods and services) U.S. trade deficit with
dropped to zero. From 2011 to 2019, U.S. auto and parts
South Korea has increased since KORUS went into effect.
exports more than doubled to $2.6 billion, while U.S.
It grew rapidly in the early years of the agreement, from
imports increased by 63% to $25.1 billion.
$4.3 billion in 2011 to a peak of $16.3 billion in 2015,
causing some concern among policymakers though
Services
economists generally pointed to other factors to explain the
Services trade was a priority in the KORUS FTA talks as
growth in the deficit. In 2016, the U.S. International Trade
the United States sought greater market access for its highly
Commission estimated that the bilateral trade deficit would
competitive services firms, and South Korea hoped to
have been larger without KORUS. Slower economic growth
improve productivity in a sector that lags behind its
in South Korea during this period likely explains some of
manufacturers. Commitments are on a “negative list” basis;
the deficit growth; South Korea’s imports from China and
i.e., they apply to all sectors except those specifically
Japan were also flat or fell from 2011 to 2016. This pattern
exempted. Provisions prohibit discriminatory treatment,
shifted in 2017, as South Korea’s global and U.S. imports
local presence requirements, and market access limitations,
increased markedly. Since 2016, the bilateral deficit has
and require certain steps in the regulatory process. Industry-
declined by nearly $9 billion to $7.4 billion in 2019,
specific commitments include the opening of South Korea’s
accounting for only 1% of the global U.S. trade deficit.
legal services sector; a financial services chapter including
a provision to allow data flow transfers; and an annex on
Figure 1. U.S. Total Trade with South Korea
express delivery. Since 2011, the U.S. bilateral services
trade surplus trade grew from $8.0 billion to $13.4 billion,
with major growth in exports of travel (+$1.4 billion) and
business services (+$1.7 billion).
Potential Issues for Congress
Trade Agreements and Trade Deficits.
The Trump
Administration made trade balances a key metric of the
success of U.S. FTAs, yet most economists argue other
factors largely determine trade balance outcomes. What are
the best metrics to evaluate U.S. FTAs? Has KORUS,
which lowered reciprocal trade barriers, achieved its goals?
Modifications and Ongoing Implementation. Congress
has constitutional authority to regulate foreign commerce,
implements FTAs through legislation, and sets U.S. trade

negotiating objectives, but the Trump Administration
Source: Bureau of Economic Analysis.
negotiated modifications to KORUS without legislative
Selected Key Sectors and Provisions
approval by Congress. What is the appropriate role for
Congress in considering modifications to FTAs that do not
Agriculture
require changes to U.S. law?
Agricultural products are an area of U.S. comparative
advantage. The United States ran a $6.8 billion agricultural
Trade Disputes and the Alliance. Some analysts worry
trade surplus with South Korea in 2019. South Korea’s
that trade tensions may influence South Korean views on
agriculture sector is highly protected—its agricultural tariffs
the alliance and broader bilateral relations. What is the most
average 57%—but through KORUS, South Korea
productive way to address trade concerns, such as the
immediately granted duty-free status to almost two-thirds of
imbalance in bilateral auto trade, without damaging vital
U.S. agricultural exports. Tariffs and import quotas on most
U.S. national security and foreign policy interests? Are the
KORUS FTA’s dispute mechanisms sufficient?
other agricultural goods were phased out by 2021. One of
How
the most significant market access gains for U.S. producers
should President Biden address the Trump Administration
is South Korea’s phased elimination of its 40% tariff on
import restrictions, which affect trade with South Korea?
beef by 2026. U.S. export gains from 2011 to 2019 have
been strong in sectors with large tariff reductions, such as
Brock R. Williams, Coordinator, Specialist in
beef (+$1.1 billion) and fruits and tree nuts (+$221 million).
International Trade and Finance
South Korea excluded rice from the FTA tariff
https://crsreports.congress.gov

U.S.-South Korea (KORUS) FTA

Mark E. Manyin, Specialist in Asian Affairs
Bill Canis, Specialist in Industrial Organization and
IF10733
Business


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https://crsreports.congress.gov | IF10733 · VERSION 9 · UPDATED